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Cramer's 'Mad Money Recap': Bristol-Myers' New Look

TheStreet.com Staff

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"We like companies that can reinvent themselves," Jim Cramer told viewers of his "Mad Money" TV show Monday. That's why he says he's positive on a drug maker he once hated -- Bristol-Myers (BMY).

Bristol-Myers has a big problem. With 50% of its drugs coming off patent protection in the next three years, most investors have lost faith in Bristol's ability to replace those lost revenues. But Cramer feels that the company does have a plan to turn around the situation, and that plan will be unveiled at Bristol's annual shareholder meeting on Tuesday.

Cramer said that Bristol tipped its hand with the recent sale of its wound-care business, ConvaTec, for $4.1 billion. The sale, he said, gives Bristol a much needed cash boost, as does its plan to spin off 10% to 20% of its Mead Johnson baby formula business in an IPO.

With the ConvaTec sale and lofty expectations that Mead Johnson might fetch as much as $9.1 billion, Cramer expects cash-rich Bristol to start acquiring smaller drug companies to replace its waning portfolio.

Cramer also is optimistic about the future of Bristol's internal drug pipeline. He noted the company is developing promising drugs for HIV, leukemia, breast cancer, and arthritis. "The problem is that no one believes what Bristol says," said Cramer, adding all of these new drugs could be blockbusters.

Bristol-Myers' valuation is also appealing. He said the company trades at 11.4 times its earnings and an 11% long-term growth rate. The company is also aggressively cutting costs and has a "mouth-watering" 5.4% dividend yield.

Bottom line: Bristol "is just not getting enough love," he said. He believes the company is transforming itself into a pure play drug company and sees tremendous value in the process.

The Aluminum Substitution Game

"When steel prices get as high as they are, companies turn to aluminum," said Cramer.

For that reason, he's changed his mind and is now recommending Alcoa (AA) as a stock investors should own.

Alcoa currently controls 10.9% of the world's aluminum market and 19.8% of the world's raw alumina, making it the most attractive of the aluminum stocks, Cramer said.

He said aluminum is replacing the heavier and more expensive steel in industries from food packaging to autos to aerospace. And he noted China has finally worked through its excess aluminum supplies and is now once again a buyer in the global aluminum marketplace.

Cramer also identified Alcoa's fastener business as a fabulous hidden gem within the company, noting the company provides up to one million fasteners for Boeing's (BA) new 787 Dreamliner alone.

Given BHP Billiton's (BHP) failed bid for Rio Tinto (RTP), Cramer said Alcoa could be a takeover target and should be valued as high as $50 to $64 a share. The company currently trades at just 10 times its earnings with a 21% long-term growth rate.

Although Alcoa has had a history and reputation of earnings missing and failed executions, he feels those legacies are behind the company.

Wrong on Google

"If there's one thing I believe in, it's accountability," Cramer told viewers. "I'm showing you where I've made my mistakes so you can learn from them."

Cramer apologized for his negative call on Google (GOOG), missing the company's run from $449 to $595 a share.

"Simply put, I stayed negative for too long," said Cramer. He cited four reasons for his decision. First, he relied on market data provided by Comscore, rather than doing his own homework. On Feb. 26, Comscore reported declining traffic at Google, but he said that couldn't have been further from the truth.

Second, he made the mistake of comparing Google to competitor Yahoo! (YHOO), reasoning that if Yahoo was shrinking, Google must be too. In reality, Google was taking share from Yahoo.

Third, he neglected to account for how quickly Google would see a return from its acquisition of DoubleClick, which, it turns out, is doing a lot better than anyone expected at this early stage.

Finally, he misjudged Google's international business growth. The company's international revenues grew at 14% this past quarter, much higher than Cramer expected.

"Now is the time to learn from my mistakes," said Cramer. With Google trading at just 23.5 times its earnings and carrying a 28% long-term growth rate, Cramer predicted Google could soon see $697 a share.

Mad Mail

In this segment, a viewer asked Cramer about Education and Technology Group (EDU). Cramer said that stock is difficult to analyze and he'd stay away.

Another viewer asked about Shaw Group (SGP). Cramer said he's concerned with the company's nuclear exposure domestically and its dependence on its international exposure.

Sudden Death

Cramer was bullish on Arch Coal (ACI), Peabody Energy (BTU) and Chesapeake Energy (CHK).

Cramer was bearish on North American Palladium (PAL) and International Coal Group (ICO).

Lightning Round

Cramer was bullish on Waste Management (WMI), Dryships (DRYS), Frontline (FRO), Atlas Energy Resources (ATN), Kroger (KR), Safeway (SWY), Terex (TEX), Visa (V), Cepheid (CPHD) and Becton Dickinson (BDX).

Cramer was bearish on Teledyne Technologies (TDY).

Want more Cramer? Check out Jim's rules and commandments for investing by clicking here.

For more of Cramer's insights during the Lightning Round, click here.